by Tom Licata
Sen. Bernie Sanders, (“Sanders: Defending Social Security” Vermont Digger, Feb. 2) states the following:
“Just about every day, in one form or another, we hear from our conservative friends that Social Security is in “crisis,” that Social Security is going “bankrupt” and that the Social Security Trust Fund contains nothing more than a pile of worthless IOUs. As a result of this barrage of misinformation, many young Americans have been convinced that when they reach retirement age, Social Security will not be there for them.”
Who are these seemingly “conservative friends” of which Sen. Sanders writes of, propagating this “barrage of misinformation” by warning the public that, as Sen. Sanders puts it, “Social Security is going bankrupt”?
Perhaps they are the authors of the 2011 annual report titled “Status of the Social Security and Medicare Programs,” which states:
“The projected actuarial deficit in each of these programs [Social Security & Medicare] is large enough that continued solvency under current-law financing is extremely unlikely.”
The “conservative friends” behind this report are none other than the six Trustees of Social Security and Medicare. These “conservative friends” include: Secretary of the Treasury Timothy F. Geithner, Secretary of Health and Human Services Kathleen Sebelius, Secretary of Labor Hilda L. Solis, Commissioner of Social Security Michael J. Astrue and two other public Trustees appointed by the President.
And then there is this, from the “conservative friends” at AARP:
“AARP, the powerful lobbying group for older Americans, is dropping its longstanding opposition to cutting Social Security benefits, a move that could rock Washington’s debate over how to revamp the nation’s entitlement programs. … AARP now has concluded that change is inevitable, and it wants to be at the table to try to minimize the pain. “The ship was sailing. I wanted to be at the wheel when that happens,” said John Rother, AARP’s long-time policy chief,” (“Key Seniors Association Pivots on Benefit Cut,” June 17 Wall Street Journal).
Thus, it appears that Sen. Sanders is incorrect regarding his Social Security outlook and that this “barrage of misinformation,” as he puts it, coming from groups such as the Trustees of Social Security and Medicare and AARP, isn’t “misinformation” at all.
Sen. Sanders, in his Feb. 2 Vermont Digger op-ed, goes on to deride President Obama’s deficit reduction commission for “cutting benefits for future retirees making as little as $42,000 a year,” but what Sen. Sanders claims, dare I say, is nothing more than a “barrage of misinformation.”
In his fact-based op-ed (“Nobody is Proposing to ‘Slash’ Social Security Benefits,” WSJ Feb. 3), Charles Blahous, one of those “conservative friends,” appointed by the President as one of the two public trustees for Social Security and Medicare, writes this:
“Neither Republican nor Democratic plans, nor the plan put forward by the [deficit] commission, would cut benefits for today’s seniors or for the poorest workers. Whether the status quo remains or the system is reformed, Social Security benefit levels will grow substantially from this point forward.”
How is this so?
Social Security’s growth, beginning in 1977, became tied to wage, rather than price growth. And since wages have historically tended to grow faster than prices, today’s average Social Security recipient earning benefits of about $18,000 a year will earn some $29,000 (in today’s dollars) in 2050. The Bowles/Simpson deficit commission report suggested changes to this growth that would have slowed that $29,000 growth to $24,000 in 2050; still allowing tomorrow’s recipients $6,000 in greater purchasing power than today’s recipients.
Should such changes not take place, tomorrow’s workers (our children) will see enormous tax hikes on their earnings. Today’s workers pay roughly one dollar in taxes for each eight in earnings and without reform, tomorrow’s workers (our children) will be forced to pay one dollar in taxes for each six dollars in earnings; a 33% tax increase. It is our aging demographics and our pay-as-you-go system that is driving these realities.
The Trustees’ report also shows that both Social Security and Medicare are and will be perpetually operating on a negative cash flow basis, meaning their annual expenditures will exceed their program’s operating income. Social Security had a $49 billion deficit last year and is projected to have a $46 billion deficit this year. Medicare’s HI fund has run this kind of deficit since 2008 and its anticipated 2011 deficit is to be some $34 billion. These cash deficits must either be borrowed (from the Chinese) or taken from other U.S. operating funds (such as education or transportation).
In totality, the unfunded liabilities of Social Security, Medicare and Medicaid sum to well over $50 trillion.
For Sen. Sanders to engage in his continued claims of “misinformation” and demagoguery, as he does in his Feb. 2 Vermont Digger op-ed, by blaming “Wall Street” (induced by the policies of Fannie Mae, HUD, Congress & the Fed); the “Bush tax cuts” (total federal tax revenues rose 44% between years 2003-2007); our “two wars” (non-recurring & ending events), etc…, only delays the necessary reforms needed to confront the most challenging crisis we face since both the Great Depression and World War II.
This past July, the International Monetary Fund (IMF) released its annual review of U.S. economic policy. Section 6 of the July 2010 Selected Issues Paper stated this: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It went on: “Closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.” Think about that: 2010’s total federal revenue intakes were roughly 14 percent of U.S. GDP and 2011’s are expected to be only slightly higher than 2010’s. In other words, all taxes (income, payroll, corporate, etc…) would need to be doubled to close the fiscal gap.
And to add fuel to this fire, there is enormous interest rate risk facing our nation. Former Director of the National Economic Council at the White House, Lawrence Lindsey, finds that our average cost to finance our current $14 trillion debt is just 2.5%, but that our average borrowing cost over the last three decades was some 5.7%. Given the fact that a one basis point increase (1/100th of 1%) in our average borrowing costs amounts to about $1 billion, moving from our current borrowing cost of 2.5% to the historical average of 5.7% would add about $320 billion to our interest payments and our budget.
Erskine Bowles, President Obama’s co-chairman of his Fiscal Commission and President Clinton’s former chief of staff, said it best:
“I think it’s a fact that as a nation we face the most predictable economic crisis in our history…this debt is like a cancer. It is truly going to destroy the country from within…and it is basic arithmetic.”
Sen. Sanders, as one of your Senate colleagues’ put it:
“Demagoguery is the last refuge of the spineless politician willing to do anything to win the next election.”
Sen. Sanders, I am duty-bound to debate you, not on your demagoguery, but on the merits of our nation’s crisis, anytime, anyplace.
(Tom Licata is founder of Vermonters for Economic Health.)